This week’s Official Cash Rate (OCR) announcement brought no change, with the Reserve Bank holding things steady at 3.25% on 9 July.
It’s the result the market was expecting, but was it the right call?
The thinking behind the decision was that, with inflation having tracked up slightly in recent weeks, and overseas factors (in the form of Trump’s tariffs) creating massive uncertainty, it’s better just to hold fire for now, and wait to see what happens as the benefit of previous rate reductions flows through.
And yes, while we are starting to see some signs of life in the economy again—the export and agriculture sectors are doing well—overall, it’s been a pretty sluggish recovery so far. In light of that, anything that’s going to help kickstart things again has got to be a good thing, and getting back to that ‘neutral’ 3% as quickly as possible still feels like a good strategy.
Especially when we’re already as close as we are.
The RBNZ clearly feels differently, however, so for now it’s hit the pause button.
We’re still expecting that final 0.25% reduction sometime before the end of the year—potentially as soon as our next OCR announcement on 20 August, although that remains to be seen.
What does the news mean for mortgage rates?
Borrowers shouldn’t expect to see too much further downward movement in interest rates from here. We’re getting very close to the bottom of the cycle.
At the moment, we’ve got one- and two-year rates sitting at around 4.89%, and a three-year rate at 4.99%—which is a really good rate in the current environment.
The advice to anyone settling on a new mortgage soon, or heading for a refix, would be to think about splitting your loan across a mix of shorter and longer terms.
That approach means you get the best of both worlds—interest rate certainty over the longer-term portion, and, with the shorter-term portion, the ability to take advantage of potentially lower rates in a year’s time.
__Check in again next week for the latest on New Zealand interest rates. __
